Correlation Between Northern Technologies and Kronos Worldwide

Can any of the company-specific risk be diversified away by investing in both Northern Technologies and Kronos Worldwide at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Northern Technologies and Kronos Worldwide into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Technologies and Kronos Worldwide, you can compare the effects of market volatilities on Northern Technologies and Kronos Worldwide and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Northern Technologies with a short position of Kronos Worldwide. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Technologies and Kronos Worldwide.

Diversification Opportunities for Northern Technologies and Kronos Worldwide

0.65

Correlation Coefficient

Northern Technologies  Kronos Worldwide

Poor diversification

The 3 months correlation between Northern and Kronos is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Northern Technologies and Kronos Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kronos Worldwide and Northern Technologies is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Northern Technologies are associated (or correlated) with Kronos Worldwide. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kronos Worldwide has no effect on the direction of Northern Technologies i.e., Northern Technologies and Kronos Worldwide go up and down completely randomly.

Pair Corralation between Northern Technologies and Kronos Worldwide

Given the investment horizon of 90 days Northern Technologies is expected to generate 0.78 times more return on investment than Kronos Worldwide. However, Northern Technologies is 1.28 times less risky than Kronos Worldwide. It trades about -0.18 of its potential returns per unit of risk. Kronos Worldwide is currently generating about -0.16 per unit of risk. If you would invest  1,280  in Northern Technologies on December 29, 2024 and sell it today you would lose (238.00) from holding Northern Technologies or give up 18.59% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Northern Technologies  vs.  Kronos Worldwide

Northern Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Kronos Worldwide

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kronos Worldwide has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Northern Technologies and Kronos Worldwide

The main advantage of trading using opposite Northern Technologies and Kronos Worldwide positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Technologies position performs unexpectedly, Kronos Worldwide can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Kronos Worldwide will offset losses from the drop in Kronos Worldwide's long position.

The idea behind Northern Technologies and Kronos Worldwide pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.